Principles of Successful Investment: Peter Lynch
Investing in stocks and shares isn’t a child’s play. One must be aware of all the possible outcomes as well as acknowledge the pros and cons of this field. If not careful, one may suffer great losses but once you understand and apply the tips, tricks and principles you will flourish till the top floor.
One should always keep in mind that past performance is not indicative of our future results. A clear example of this is Peter Lynch, an investor, mutual fund manager, philanthropist and the former manager of the Magellan Fund at Fidelity Investments.
Highlights:
- Glimpse of his past
- Principles of Success
- Success story
- Contributions
Here are some profitable principles stated by one of the most legendary American investors Peter Lynch, to avoid mistakes, to learn from his lessons and how to do “smart-work” instead of just hard work.
To introduce Peter Lynch, let’s take a brief look at his early stages.
Getting Familiar with Lynch
At the age of 10, Lynch’s father expired and his mother being the only support had to start working. His interests gained in the stock market when he overheard a conversation working as a caddy at the age of 11.
At a very young age, he used his savings to buy 100 shares of Flying Tiger Airlines at $8 per share. The stock would later rise to $80 per share which it would later use to pay for his education.
He graduated from Boston College with a degree in finance (1965). He worked as a summer student at Fidelity (1966). And acquired an MBA from the Wharton School of Business at the University of Pennsylvania (1968).
At age 25, Lynch got his first full-time job as a textiles and metals analyst at Fidelity.
Lynch’s Golden Rules to Success
Lynch coined some of the best-known mantras of modern individual investing strategies.
- “Invest on What You Know!”
According to him, if you cannot explain what this company does to your sibling or anyone within 30 seconds or less, you shouldn’t own it. One should do complete research and own full knowledge of the company.
Lynch is credited with inventing the price-to-earnings-growth (PEG) ratio, which assists investors with deciding if a stock is economical given its development potential, alongside other stock valuation techniques mainstream with esteem investors.
- Avoid Being Pleased with Self’s Merit:
Continue working hard and check for competitors, customers, suppliers, etc. Always aim to try and improve the company no matter the achievement gained.
- Take Advantage of Stock Decline
Every 6 years, the market is going to have 25% decline. One must use the dollar-cost averaging method of investing.
For example, if you invest $500 a month in a mutual fund selling for $25, your contribution buys 20 shares. If the share price drops to $20, your contribution buys 25 shares. Your account now has 45 shares with an average cost basis of $22.
- Biggest Mistake Individual Investors Making:
The public’s careful when they buy a house when they buy a refrigerator. They’ll work hours to save a hundred dollars. They’ll put $5,000 or $10,000 on some zany idea they heard on the bus. That’s gambling. That’s not investing. That’s not research. That’s just total speculation.
- Never Fall in Love with a Company:
It’s easy to fall in love with a company we’ve invested in do well, and forget that we bought the stock as an investment. Always remember, you bought this stock to make money. If any of the fundamentals that prompted you to buy into the company change, consider selling the stock.
How Lynch became so Successful?
In 1977, Lynch assumed control over the Magellan Fund (created in 1963 for domestic investments).
The day Peter assumed control over this asset, it was having complete speculations of $18 million, and after 13 years, when Peter left that post, the asset held ventures of approx. $14 billion. This is the 13 years of his career where he averaged an annual return of 29.2%, which is set apart throughout the entire existence of mutual funds. He outperformed the S&P 500 for all but two years.
“Behind every stock is a company. If the company does well, over time the stocks do well. If a company does lousy, then the stock will be lousy”.
Many investors commonly symbolise Lynch as an illustration that active management can accomplish better outcomes relative than the benchmark.
Contributions
Lynch has composed three writings on investing, including One Up on Wall Street, Beating the Street, and Learn to Earn. The last-named book was composed for starting speculators, everything being equal, principally youngsters.
He created the Lynch Foundation to support charity, education, religious organizations, medicine, and more. The Lynches started the foundation with $17 million in 1988 and it has a value of $125 million, they gave away $8 million in 2013.
Lynch received the 1992 Seton Award from the National Catholic Education Association.
His journey from the struggle of a 10-year-old boy to one of the most successful investors in history shows that patience and perseverance are keys to flourishing achievement.
No one starts off successful, everyone goes through failure but no one is a born looser too. Learning from struggles and accepting failures is what makes a man stand out bright just like Peter Lynch, a true inspiration.
